Valeant buys Visudyne drug from QLT

QLT Inc., once a top-notch Canadian biotech company with a rich valuation and annual sales in the hundreds of millions of dollars, appears to be returning to its roots as a drug development business with no current commercial operations.

The Vancouver-based company said Monday it sold its flagship product Visudyne, a treatment for age-related blindness, to Valeant Pharmaceuticals International Inc. for US$112.5-million.

The move comes after a board shakeup that led to a change in leadership at the top and downsizing of two-thirds of the company’s workforce, leaving it with just 68 employees by July.

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Jason Aryeh took over as chairman of QLT in early June after an activist shareholder initiated a proxy fight that prompted the election of the new board and the replacement of several executives.

Mr. Aryeh said in a conference call Monday morning that the new board has worked to reduce the company’s cost structure and focus on developing its sythentic oral retinoid product, which is moving toward the clinical trial stage.

“We started off this process on June 4 with 214 employees and 35 days later we were at 68,” Mr. Aryeh said. “Clearly this will be a smaller company and a more acutely focused company and a developmental company with, fortunately, a tremendous balance sheet.”

At the end of June, QLT had $203.3-million in cash on its books and the funds from the Visudyne sale will further bolster that and should help the board follow through on its previously announced plans to return $100-million of capital to shareholders.

In a July note to investors after the new board outlined plans to consider the sale of Visudyne as well as a punctal plug product (medical devices inserted into the eye ducts), Douglas Miehm, an analyst at RBC Dominion Securities Inc., increased his price target on the company to $11 per share, up from $9.

The new organization, Mr. Miehm said, would, “resemble a more traditional biotech R&D organization, which should be sufficiently capitalized to fund the synthetic retinoid program without diluting shareholder interests.”

In an email to clients Monday, he said the Visudyne sale “should expedite the timelines and possibly increase the return to shareholders.”

The company’s stock gained more than 7.5% on Monday after the news, closing up 56¢ at $7.97 on the Toronto Stock Exchange.

QLT started as a spinoff of research done at the University of British Columbia in 1981. Its key product — a treatment for macular degeneration that involves injections into the eye followed by cauterization with an infrared laser — was first approved in 1999.

At the time, there were no other treatments available for the disease, which leads to blindness within a matter of years.

QLT’s stock took off, reaching a high of $115 in 2000 and the company’s market capitalization hit $7.5-billion.

But as alternatives to Visudyne came to market and royalty disputes consumed time and resources, QLT’s shares slipped below $10 in 2005 and have remained in that range ever since. Its current market value is just over $400-million.

With other drugs like Macugen, Lucentis and more recently Eyelea available, sales of Visudyne have steadily declined.

Montreal-based Valeant, which has been on a very public acquisition spree, has an already established ophthalmology division and acquired Eyetech Inc. (maker of Macugen) earlier this year.

Although newer treatments are preferred by many patients, for some Visudyne is still an appropriate choice, leaving it a scaled down but still viable business.

Valeant paid US$62.5-million for U.S. rights and inventories of Visudyne and US$50-million for rights to non-US royalties which are under a license agreement with Novartis Pharma AG.

The drug had U.S. sales of about US$21-million last year and made about US$14-million outside the United States, Valeant said.

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